Preferential treatment/insider

[eich74]

If my cosigner paid off the loan with their own money more than 90 days ago would that be considered preferential treatment and/or an insider?

I am not paying them back. It was a condition of them refi their mortgage, which I am not on.

[justbroke]

My guess, no direct experience, but the cosigner paying off a loan would not be a preference. However, a non-consigner such as parents, friends, relatives paying off an unsecured debt for you prior to filing, would be a preference.

In any event preferences are clawed back from the creditor and not from the debtor. So at worse the creditor has to return the money to the Trustee for that money to be distributed, pro rata, to the other general unsecured creditors.

[eich74]

Thanks justbroke

[bcohen]

I would argue that the co-signer paying off your loan was not a preferential payment for two reasons. First, and most importantly, they are not a party to any of your other debts, nor to your bankruptcy, so by definition they are not "preferring" one creditor over another. Also, it could be argued that they received a contemporaneous exchange for value by paying off the loan. In other words, they paid off your loan in order to be approved for a loan of their own. The ability to obtain this other loan was obviously quite valuable if they were willing to pay off thousands of dollars of someone else's debt in order to meet the lender's guidelines!